It’s Lonely at the Top

Two of the most influential documents in the history of the world were the Declaration of Independence and the Constitution of the United States.  These documents were written by some of the smartest statesmen in the world.  Forged in compromise, they have endured for over 225 years and remain the model for much of the rest of the world.

Much has been written about the 56 signers of the Declaration and the 39 signers of the Constitution.  What many don’t know is that only 2 of the signers of the Declaration went on to be President of the United States (John Adams and Thomas Jefferson) and 2 signers of the Constitution achieved the same (George Washington and James Madison).

Why did only four of these influential men achieve the highest position in the country?  Simply stated, it is really hard to be number one.

The view from the top

Business owners understand that all too well.  In addition to guiding the strategy of the firm, they often serve as sales, marketing, production, and janitorial.  No job is too big or too small.  What matters to the owner are the results.  And it can be tough to think about leaving the legacy of your company in someone else’s hands.

This becomes very evident as the owner plans for ownership transition.  In fact, the transition of leadership may actually limit who the potential buyers could be.  Potential buyers are going to look at the operations, finances, and management quality as part of their review.

If there is no one currently at the firm prepared to lead it may effectively eliminate the ability to sell to the leadership team or the employees, as a bank simply may be unwilling to take a risk on them.  Rather, they would likely have to look at a third party buyer such as a supplier, competitor, or customer.  This limits the number of potential buyers and the price the selling owner may receive.

The importance of succession planning

Planning for the succession of the leadership of the company is an integral part of planning for the eventual sale.  Business owners would be well served to start planning for this years in advance of any expected transfer to make sure that the management team is ready, willing, and able to continue the firm’s legacy.

Some business owners think this is an expense they simply cannot afford.  In truth, this would be an investment they can’t afford NOT to make.

In addition to blogging here, I also tweet regularly about topics of interest to ESOPs. Follow @twitter 

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t17071006w6 – 7/2017